Friday, August 5, 2016

Despite the fact that
headline employment data shows what appears to be a healthy economy, millions
of work-deprived Americans who have fallen off the Bureau of Labor Statistics
radar screen would suggest otherwise. One of the greatest declines in
America's "job creation machines" has been in manufacturing. Here is a graph showing what has happened to
the number of manufacturing jobs in the United States since 1939:

We have to go all the way back to World War II to find manufacturing job levels that are the same as they are today.

Here is a graph showing
the percentage of non-farm employees that are involved in the manufacturing
sector:

Right now, only 8.5
percent of non-farm workers in the United States are involved in the
manufacturing sector, down from nearly 26 percent in 1970 and 13.2 percent in
2000. Since the Great Recession began, the number of workers in
manufacturing has dropped from 13.746 million in December 2007 to its current
level of 12.296 million, a loss of 1.45 million jobs. Even worse, since China acceded to the World Trade Organization in December 11, 2001, the United States has lost 3.415 manufacturing jobs.

Here are some additional
statistics from the Economic Policy Institute about America's beleaguered
manufacturing sector. Between 1998 and 2013, nearly one-third of U.S.
manufacturing jobs disappeared along with over 80,000 manufacturing
establishments. While manufacturing made up 12.1 percent of GDP in 2014,
its footprint in the American economy is far larger; in addition to the 12
million or so workers directly employed in manufacturing, an additional 17.4
million workers are supported indirectly by the manufacturing sector. In other
words, manufacturing directly or indirectly supports more than 29.6 million
jobs or 21.3 percent of all U.S. employment (2014 data). As well,
manufacturing is responsible for $208 billion worth of business research and
development or nearly two-thirds of all U.S. business spending on R&D.
In addition, when the services that manufacturing businesses purchase are
factored into the equation, the value of gross output from this one sector
amounted to $6.2 trillion or roughly 35 percent of GDP

Note the rather dramatic
increase in the goods trade deficit after the much-touted (by Bill Clinton, no less) WTO
trade deal with China. In May 2016, exports of goods were $119.8 billion
and imports of goods was $182.1 billion, resulting in a goods trade deficit of
$62.3 billion, slightly larger than the goods trade deficit for all of 1991!

It's pretty obvious that
the manufacturing sector was and still could be a significant job creator for
the United States economy, however, there is one key factor that has interfered
with this mechanism. In a Policy Memo by Robert Scott at the Economic
Policy Institute, the author outlines the root causes of the problem.
Globalization has created an extremely competitive trade environment and
all nations, particularly those in Asia, are looking for an edge to give them
increased market shares. Through the use of currency manipulation, these
nations have affected the value of their currencies to make their domestically produced goods less
expensive and, by comparison, American-made goods more expensive. In this
case, currency manipulation acts like a form of tax or tariff on imported
goods, making domestically produced goods look more attractive to local
consumers and exported goods more attractive to outside consumers.
Nations that run large and consistent trade surpluses with the United
States (i.e. the United States runs trade deficits with these nations) tend to
be currency manipulators. Governments can manipulate currencies by buying
foreign assets denominated in the currencies of other nations (i.e. U.S.
Treasuries) which increases the demand for that currency relative to their own
currency. China and roughly 20 other Asian nations have purchased
trillions of dollars worth of U.S.-denominated assets over the past 15 years
(again since China joined the WTO in 2000) and this has resulted in this:

To give you a sense of
how big the problem has become, back in 2000, China held only $60.3 billion in U.S.
Treasuries and Japan held $317.7 billion. By 2005, four short years after
China joined the WTO, their holdings of Treasuries had grown to $310 billion,
five times what they held in 2000. Can anyone say "currency manipulation"?

While Donald Trump is
correct in announcing that China's currency manipulation is responsible for the
massive trade deficit, his claims that countervailing duties will clean up the
problem with trade deficits will not really help American workers.
Increasing tariffs on imported goods will achieve only one thing; raising
the cost of goods that the United States imports. Any new job creation in
competing industries would be limited because of the negative effect of tariffs
on domestic prices. The biggest part of the problem for American workers
is the excessive demand for the United States dollar which has been driven up
to excessively high values; in the past two years alone private capital flows
in China and Europe have driven the dollar up by an additional 15 percent.
This will have a medium- and long-term negative impact on U.S. trade deficits and
the creation of domestic manufacturing jobs. How can we tell when the
dollar is fairly valued? The author of the memo suggests that the dollar
will be fairly valued when the United States experiences neither a trade
surplus nor a trade deficit. This balance would be accomplished when the
U.S. dollar falls by between 25 and 30 percent on average and by more when
measured against the currencies of China, Germany and Japan, for instance, the
value of the dollar would have to fall by 37 percent against China's yuan
renminbi and 50 percent against Japan's yen. If trade balance were
achieved, there would be a significant increase in the demand
for United States-manufactured goods which would ultimately result in the rebuilding of the lost manufacturing sector jobs.

How can an end to
currency manipulation be achieved? Economists have have suggested two
methods that the United States could use:

1.) intervene in the
currency market by engaging in countervailing currency intervention (CCI) by purchasing large amounts of foreign assets denominated in the
currencies of the trade surplus nations.

2.) impose an adjustable
market access charge which would act as a tax or fee on all capital inflows.
This would result in a decrease in the demand for dollar-denominated
assets and would push down the value of the U.S. dollar.

To keep these policies
free of "political meddling", the author suggests that the two
approaches could be implemented by the Department of the Treasury (or less
appealingly, at least to me, by the Federal Reserve). This would remove
the ability of the president or Congress to interfere with the neutrality of
the system.

While imposing
countervailing duties or tariffs on nations that are taking part in currency
manipulation seems like a great idea, it will do little to solve the problem of
increasing demand for American exports. The whole point of realigning the
value of the U.S. dollar is two-pronged; it makes imported goods more expensive
to American consumers and, most importantly, it makes American goods more
competitively priced to foreign consumers. It is that effect of reducing
currency manipulation that will result in the resurrection of American
manufacturing sector and putting millions of workers back into well-paying
jobs. Even a million new manufacturing jobs would help.

4 comments:

Actually, the root problem is the offshoring of jobs by large corporations indigenous to the US(and Europe, Japan as well), with the subsequent importation of final goods for sale to the US from China, etc., that were previously made in the US. This also crushes what most people consider 'trade'-indigenous companies producing (some) goods in their own nation for sale to other nations(to the extent a true Chinese company can do this, they should be on an equal footing with Canadian, etc. firms). The fundamental change that needs to occur is that business enterprises must be held to be part of a specific nation(the one where they began existence and initially grew)and society and they must fundamentally conduct their operations in line with the best general interests of the society they are part of-in employment terms in particular.This is especially true of huge transnational publicly traded firms that have no real outside governor on their actions. And the pain of violating this can't be placed on the 'corporation'(a legal fog) itself, it must be put on the corporocrats at the top and the capital providers to the corporation. Using the Carrier shutdown in Indianapolis as an example, those who hold public equity or debt securities of United Technologies(parent of Carrier) should face an annual tax of 25% on the market value of their holdings, and it should be applied to typically untaxed entities, such as pensions, IRA's, etc. Members of the United Technologies board of directors and, say, the top 10% of employees there in compensation should face a 50% federal income tax surcharge on all ordinary income, and a 150% surtax on any 'incentives'-get a $100K bonus, or stock option gain, $150K in tax liability immediately is created. Cost/benefit calculus of not employing within the corporations indigenous nation suddenly changes significantly.Ort, to sum up the above, the 'global supply chain' must be smashed-and if there is substantial real macro economic fallout, the pain on those who put us in that position, the corporacrats and their political and third party stooges and hench men, should feel intense personal pain.Since Trump hasn't put forth anything close to the above, I'd assume he's really a globalist and corporatist deep down(as opposed to Hillary full blown confirmation). And Mike Pence cleary is, as seen by his lack of any condemnation of Carrier, and his craven caving in to corporocrats, not citizens, in the Religious Freedom bill brou ha ha last year.

Mr. Scott is correct on many macro-trade accounts, but it is obvious when he speaks beyond his witness: His requirements of unions, pay hikes, universal insurance, et al are the source of the madness in the first place. The down-stream cascading effect of such policies is the macro-level trade manipulation. Such policies only make sense if they are self-afforded; they cannot be forced, nor mandated. Force is not trade: it is not agreement, it is debt, and debt to whom for whom?

Mr. Scott's minor inclusion of clear beyond-witness points gives the indication he won't like the answer.

Off-shoring, currency manipulation, and other "does not make sense" actions must necessarily and sufficiently have, at their origins, an initial local trade of resources, labor, and/or time for currency. This is the first exchange. Manipulation, i.e. forced non-agreement of equivalency in exchange, when it occurs in that first exchange, creates the micro-impetus that accumulates to misplaced macro-motivations to recover the loss (i.e. the differential between forced vs. agreed trade accrues in the will to remedy it by return of force in some attainable/legal way). This first exchange 'debt' is at the heart, and is the heart, of all problems. It is itself forced, and force is sought to solve it. It is itself manipulation, and manipulation is sought to solve it.

This first exchange manipulation exists. It originates from the product of differential net total productivity, of which itself is the product of differential net total racial genetic 'ableness'. This differential intrinsic self-ability creates, normally, differential real wealth -- especially over the preferred long-time-frame Mr. Scott is looking at.

This effect, by itself, means nothing. But does create two horrifying long-term effects when differential abled exist side-by-side. (1) Perverse incentives to invert reality by the able-less are instinctively created to justify and/or rational-ify theft. The inability to see the color red creates a naturally occurring insanity: a motivation to refute that the color red exists, and refute the ableness to see it exists as well, so as to justify equal first trade for productions which stem from seeing the color red. This equalist compensation insistence -and- refutation of non-equivalence -when- no equality exists is forced first exchange that presumes naivete. (2) Non-equivalent abled groups of people who exist together for enough peroid of time do learn, and learn to lie, to steal, to eat what isn't their ability to produce. With enough time, it can, and does, become part of a racial pre-position to instinctively execute: drama, exaggeration, distortion, mis-rank, mis-attribute, and confabulate, all to hide self-incorrectness and self-incompleteness, with the explicit motivation to parasite off of other groups.

While (1) is the very real problem that destroys Mr. Scott's superfluous talking points of universality (where universality explicitly, demonstrably, does not exist), it cannot be stressed enough that (2) is the very real problem that invalidates Mr. Scott's primary points. That is to say, while the currency (sans wage, union, etc) arguments are valid, they rely upon invalidity to confess/accept and commit to the consequent reality that follows execution of such acceptance, which is proven by history to not occur. Those who can-not are almost always so because they are able-not, and able-ness is a pre-requirement. That is, if you can see, then you're not the problem, and you notice sight-lacking-driven under performance in others, and you are valid; whereas if you can't see, then you are the problem, and you can't notice sight-lacking-driven under performance in yourself. And as the provisions of paradise run out, you must lie adamantly to eat, which itself is the reason why paradise runs out.

Over the last several years the "stop globalization" movement has gained support in developed countries across the world. Currently, the forces against globalization are growing stronger, globalization seems to be a magnet pulling blame for many of the problems we see across the planet.

This polarizing subject has created some rather strange bedfellows and alliances. A discussion of globalization can include several issues such as, immigration and free trade. Other social concerns also feed into the mix, things like global warming, nationalism, inequality, even population growth. The article below delves into this matter.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.